© Reuters
On Monday, TD Cowen maintained its Market Carry out ranking on American Eagle Outfitters (NYSE:) and elevated the worth goal to $23.00 from $21.00. The adjustment follows American Eagle’s fourth-quarter earnings per share (EPS) for fiscal 12 months 2023, which exceeded expectations by 11 cents, pushed by larger gross margins.
The corporate additionally offered steerage for fiscal 12 months 2024 and the primary quarter of 2024 that surpassed analyst forecasts.
American Eagle’s administration has outlined a three-year strategic plan with monetary targets aiming for a compound annual progress price (CAGR) of 3-5%, mid to excessive teenagers EBIT (earnings earlier than curiosity and taxes) progress, and an EBIT margin of roughly 10% by fiscal 12 months 2026.
TD Cowen acknowledged the potential for the corporate to realize these targets if it could actually maintain a constant low single-digit share progress price.
The agency additionally acknowledged the alternatives for Aerie, American Eagle’s lingerie and activewear model, to increase within the activewear market as a consequence of its sturdy model positioning. Nevertheless, issues have been raised concerning potential vogue and stock dangers because the American Eagle model makes an attempt to increase into tops and adjoining product classes.
Moreover, there may be skepticism about American Eagle’s capability to fulfill its 300 foundation factors margin enlargement goal over the subsequent three years, provided that merchandise margins are already at what the analyst considers peak ranges.
TD Cowen’s revised worth goal of $23.00 is predicated on roughly 12 instances the fiscal 12 months two price-to-earnings (P/E) ratio and the agency’s fiscal 12 months 2025 EPS estimate of $1.92. The valuation, which is in step with the historic common of round 12x P/E and roughly 7x enterprise worth to EBITDA, suggests restricted potential for valuation enlargement, in response to the agency’s evaluation.
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